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Commerzbank Sees Rosy Future After Record Result

Commerzbank raised its earnings target for this year after bumping up the dividend on the back of a record 2006 net profit that cemented the group's return to financial health.

Germany's second-biggest commercial lender said on Wednesday it would make a net return on equity of more than 12% in 2007. That is higher than the 11% previously flagged and edges closer to international rivals on this profits measure.

"The market will like the higher forecast," said one London analyst. Many others gave a nod of approval to the bank's 2006 net profit of almost 1.6 billion euros and its promise to make at least 1.5 billion euros this year.

"It is a mixed bag but overall good," said Britta Schmidt at Fox-Pitt Kelton.

Commerzbank's net profit for the year fell slightly short of the 1.62 billion analysts polled by Reuters had expected.

The result, helped by a surprise lift in trading in the final three months of the year, was nonetheless a record and prompted Commerzbank to up its dividend by half to 0.75 euros per share.

Hidden Pearl

The bank's shares opened up more than 0.5% to 32 euros, a little stronger than other blue-chip German stocks.

"I think it is a thumbs up," said Dirk Becker of Kepler Equities. "I find it courageous that they have upped their goal."

He pointed to the Frankfurt lender's business with small- and medium-sized companies as a hidden pearl in its results.

That division had an operating profit of more than 300 million euros in the final three months of 2006 -- the best quarterly result of the last two years.

"The (overall) figures are disappointing but if you look at the reason for that you will find public finance and treasury," said Becker. "The Mittelstand is the business that counts and that has done very well in the fourth quarter."

Commerzbank's steadily improving profits have drawn investors and its share price has risen by more than a fifth last year, keeping up with international banking rivals.

But its stock remains unpredictable, often shooting up on rumours that it will be taken over or dipping, for example, on disappointment with Eurohypo, the investment bank cum property financier that it bought more than a year ago.

Investors have also vented frustration about Commerzbank's slow progress in retail banking, which Chief Executive Klaus-Peter Mueller put centre stage after paring down the investment bank that had pushed the group into the red.

Commerzbank has a retail market share of only around 3 percent, far less than other European rivals. More than one in five British customers, for example, has an account with Lloyds TSB.

Commerzbank's share price is twice as volatile as that of its Frankfurt neighbour Deutsche Bank although investors are willing to pay a higher premium for its shares, partly on hopes that Commerzbank will one day be bought.